Agricultural Marketing Trade And Prices

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Agricultural Marketing Trade and PricesAuthorTNAU, Tamil Nadu

IndexLN NamePage No1Introduction4 - 232Market structure conduct and performance24 - 423Marketing channels, marketing cost, marketing efficiency and marketintegration43 - 754External trade in agricultural products76 - 925Cooperative agricultural marketing institutions6STATE TRADING and QUALITY CONTROL143 - 1607Warehousing and food corporation of India161 - 2038Agricultural prices and risk management204 - 22093 - 142

Agricultural Marketing Trade and Prices1CHAPTER 1INTRODUCTIONMankind is considered the superior to the living things in the world. Civilizationtransformed that into producer of food and other basic requirements from the nomadicbehavior in which hunting and snatching were the way of life. Land cultivation and foodproduction marked the beginning of civilization particularly in the riparian lands. MotherNature has to offer Her blessings to satisfy the food needs of all living creatures. Landcultivation, otherwise known as farming is influenced by the behavior of natural eventslike rainfall, drought, flood, storm and so on and so forth. Food production has itslimitations and so all food cannot be produced in all places. In other words, foodproduction is restricted to specific locations where the soil, weather and moisture favorthat activity. Nevertheless food produced has to be consumed worldwide by the humanbeings, animals, birds and others in need. A group of people specializing in foodproduction and identified as farmers shoulder the noble responsibility of feeding theentire world. Hence there is no need to emphasis that food produced at specific placeshas to be distributed to other places of consumption. It is in this juncture, marketingplays its vital role.Marketing is as critical to better performance in agriculture as farming itself.Therefore, market reform and marketing system improvement ought to be an integralpart of policy and strategy for agricultural development. Although a considerableprogress has been achieved in technological improvements in agriculture by the use ofhigh-yielding variety seeds and chemical fertilizers, and by the adoption of plantprotection measures, the rate of growth in farming in developing countries limpingbehind the desired levels. This has been largely attributed to the fact that not enoughattention has been devoted to the facilities and services which must be available tofarmers that would support agricultural sector for its development. Marketing is one ofthose facilities needed for over all economic development of nations.Concept and DefinitionThe term agricultural marketing is composed of two words – agriculture andmarketing. Agriculture, in the broadest sense, means activities aimed at the use ofnatural resources for human welfare, i.e., it includes all the primary activities ofproduction. But, generally, it is used to mean growing and/or raising crops and livestock.Marketing encompasses a series of activities involved in moving the goods from the4www.AgriMoon.Com

Agricultural Marketing Trade and Prices2point of production to the point of consumption. It includes all activities involved in thecreation of time, place, form and possession utility.Philip Kotler has defined marketing as a human activity directed at satisfying theneeds and wants through exchange process.American Marketing Association defined marketing as the performance of businessactivities that directs the flow of goods and services from producers to users.According to Thomsen, the study of agricultural marketing comprises all theoperations, and the agencies conducting them, involved in the movement of farmproduced foods, raw materials and their derivatives, such as textiles, from the farms tothe final consumers, and the effects of such operations on farmers, middlemen andconsumers.Agricultural marketing is the study of all the activities, agencies and policiesinvolved in the procurement of farm inputs by the farmers and the movement ofagricultural products from the farms to the consumers. The agricultural marketing systemis a link between the farm and the non-farm sectors. It includes the organization ofagricultural raw materials supply to processing industries, the assessment of demand forfarm inputs and raw materials, and the policy relating to the marketing of farm productsand inputs.According to the National Commission on Agriculture (XII Report, 1976),agricultural marketing is a process which starts with a decision to produce a saleablefarm commodity, and it involves all the aspects of market structure or system, bothfunctional and institutional, based on technical and economic considerations, andincludes pre- and post-harvest operations, assembling, grading, storage, transportationand distribution.Agricultural marketing system in developing countries including India can beunderstood to compose of two major sub-systems viz., product marketing and input(factor) marketing. The actors in the product marketing sub-system include farmers,village/primary traders, wholesalers, processors, importers, exporters, marketingcooperatives, regulated market committees and retailers. The input sub-system includesinput manufacturers, distributors, related associations, importers, exporters and otherswho make available various farm production inputs to the farmers.However, as Acharya has described, in a dynamic and growing agriculturalsector, the agricultural marketing system ought to be understood and developed as alink between the farm and the non-farm sectors. A dynamic and growing agricultural5www.AgriMoon.Com

Agricultural Marketing Trade and Prices3sector requires fertilizers, pesticides, farm equipments, machinery, diesel, electricity,packing material and repair services which are produced and supplied by the industryand non-farm enterprises. The expansion in the size of farm output stimulates forwardlinkages by providing surpluses of food and natural fibres which require transportation,storage, milling or processing, packaging and retailing to the consumers. Thesefunctions are obviously performed by non-farm enterprises. Further, if the increase inagricultural production is accompanied by a rise in real incomes of farm families, thedemand of these families for non-farm consumer goods goes up as the proportion ofincome spent on non-food consumables and durables tends to rise with the increase inreal per capital income. Several industries, thus find new markets for their products inthe farm sector.Agricultural marketing, therefore, can be defined as comprising of all activitiesinvolved in supply of farm inputs to the farmers and movement of agricultural productsfrom the farms to the consumers. Agricultural marketing system includes theassessment of demand for farm-inputs and their supply, post-harvest handling of farmproducts, performance of various activities required in transferring farm products fromfarm gate to processing industries and/or to ultimate consumers, assessment of demandfor farm products and public policies and programmes relating to the pricing, handling,and purchase and sale of farm inputs and agricultural products. Of late trade in thedomestic and international markets also become the part of it.Scope and Subject MatterAgricultural marketing in a broader sense is concerned with the marketing of farmproducts produced by farmers and of farm inputs and services required by them in theproduction of these farm products. Thus, the subject of agricultural marketing includesproduct marketing as well as input marketing.The subject of output marketing is as old as civilization itself. The importance ofoutput marketing has become more conspicuous in the recent past with the increasedmarketable surplus of the crops and other agricultural commodities following thetechnological breakthrough. On one hand surplus production in agriculture resulted inproblem of distribution to consumption centres and on the other transformed agricultureinto a commercial venture where market needs came to the lime lite. Input marketing is acomparatively new subject. Farmers in the past used such farm sector inputs as localseeds and farmyard manure. These inputs were available with them; the purchase ofinputs for production of crops from the market by the farmers was almost negligible. The6www.AgriMoon.Com

Agricultural Marketing Trade and Prices4importance of farm inputs – improved seeds, fertilizers, insecticides and pesticides, farmmachinery, implements and credit – in the production of farm products has increased inrecent decades. The new agricultural technology is input-responsive. Thus, the scope ofagricultural marketing must include both product marketing and input marketing. In thisbook, the subject-matter of agricultural marketing has been dealt with; both from thetheoretical and practical points of view. It covers what the system is, how it functions,and how the given methods or techniques may be modified to get the maximum benefits.Specially, the subject of agricultural marketing includes marketing functions,agencies, channels, efficiency and costs, price spread and market s,governmentpolicyandresearch,imports/exports of agricultural commodities and commodity and futures trading.New Role of Agricultural MarketingAgricultural marketing scenario in the country has undergone a sea-change overthe last six decades owing to the increases in the supply of agricultural commodities andconsequently in their marketed surpluses; increase in urbanization and income levelsand thereby changes in the pattern of demand for farm products and their derivatives;slow and steady increase in the linkages with the overseas markets; and changes in theform and degree of government intervention in agricultural markets. Therefore, theframework under which agricultural produce markets function and the factors whichinfluence the prices received by the farmers now need to be understood in a differentperspective compared to that in the past. The role of marketing now starts right from thetime of decision relating to what to produce, which variety to produce and how to preparethe product for marketing rather than limiting it to when, where and to whom to sell.Markets and MarketingMarket – MeaningThe word market originated from the latin word 'marcatus' which meansmerchandise or trade or a place where business is conducted.Word 'market' has been widely and variedly used to mean: (a) a place or abuilding where commodities are bought and sold, e.g., super market; (b) potential buyersand sellers of a product; e.g., wheat market and cotton market; (c) potential buyers andsellers of a country or region, e.g., Indian market and Asian market; (d) an organizationwhich provides facilities for exchange of commodities, e.g., Bombay stock exchange;and (e) a phase or a course of commercial activity, e.g., a dull market or bright market.7www.AgriMoon.Com

Agricultural Marketing Trade and Prices5There is an old English saying that two women and a goose may make a market.However, in common parlance, a market includes any place where persons assemblefor the sale or purchase of commodities intended for satisfying human wants. Otherterms used for describing markets in India are Haats, Painths, Shandies and Bazar.The word market in the economic sense carries a broad meaning. Some of thedefinitions of market are given below:1. A market is the sphere within which price determining forces operate.2. A market is the area within which the forces of demand and supply converge toestablish a single price.3. The term market means not a particular market place in which things are boughtand sold but the whole of any region in which buyers and sellers are in such afree intercourse with one another that the prices of the same goods tend toequality, easily and quickly.4. Market means a social institution which performs activities and providesfacilities for exchanging commodities between buyers and sellers.5. Economically interpreted, the term market refers, not to a place but to acommodity or commodities and buyers and sellers who are in freeintercourse with one another.6. The American Marketing Association has defined a market as the aggregatedemand of the potential buyers for a product/service.7. Philip Kotler defined market as an area for potential exchanges.A market exists when buyers wishing to exchange the money for a good orservice are in contact with the sellers who are willing to exchange goods or services formoney. Thus, a market is defined in terms of the existence of fundamental forces ofsupply and demand and is not necessarily confined to a particular geographical location.The concept of a market is basic to most of the contemporary economies, since in a freemarket economy, this is the mechanism by which resources are allocated.Components of a MarketFor a market to exist, certain conditions must be satisfied. These conditionsshould be both necessary and sufficient. They may also be termed as the components ofa market.1. The existence of a good or commodity for transactions (physical existence is,however, not necessary);2. The existence of buyers and sellers;8www.AgriMoon.Com

Agricultural Marketing Trade and Prices63. Price at which the commodity is transacted or exchanged4. Business relationship or intercourse between buyers and sellers; and5. Demarcation of area such as place, region, country or the whole world.Dimensions of a MarketThere are various dimensions of any specified market. These dimensions are:1. Location or place of operation2. Area or coverage3. Time span4. Volume of transactions5. Nature of transactions6. Number of commodities7. Degree of competition8. Nature of commodities9. Stage of marketing10. Extent of public intervention11. Type of population served12. Accrual of marketing marginsAny individual market may be classified in a twelve-dimensional space.Classification of MarketsMarkets may be classified on the basis of each of the twelve dimensions alreadylisted.1. On the Basis of Location or Place of OperationOn the basis of the place of location or place of operation, markets are of thefollowing types:(a) Village Market: A market which is located in a small village, where majortransactions take place among the buyers and sellers normally residing in that village, iscalled a village market.(b) Primary Markets: These markets are located in towns near the centres ofproduction of agricultural commodities. In these markets, a major part of the produce isbrought for sale by the producer-farmers themselves. Transactions in these marketsusually take place between the farmers and primary traders.(c) Secondary Wholesale Markets: These markets are located generally atdistrict headquarters or important trade centres or near railway junctions. The majortransactions of commodities in these markets take place between the village traders and9www.AgriMoon.Com

Agricultural Marketing Trade and Prices7wholesalers. The bulk of the arrivals in these markets are from other markets. Theproduce in these markets is handled in large quantities. There are, therefore, specializedmarketing agencies performing different marketing functions, such as those ofcommission agents, brokers and weighmen in these markets. These markets help inassembling commodities from neighboring district/tehsil/state.(d) Terminal Markets: A terminal market is one where the produce is eitherfinally disposed of to the consumers or processors, or assembled for export. In thesemarkets, merchants are well organized and use modern methods of marketing.Commodity exchanges exist in these markets which provide facilities for forward tradingin specific commodities. Such markets are located either in metropolitan cities or at seaports. Delhi, Mumbai, Chennai, Bengaluru, Kolkata and Cochin are terminal markets inIndia for many commodities.(e) Seaboard Markets: Markets which are located near the seashore and aremeant mainly for the import and/or export of goods are known as seaboard markets.These are generally seaport towns. Examples of these markets in India are Mumbai,Chennai, Kolkatta and Cochin (Kochi).2. On the Basis of Area/CoverageOn the basis of the area from which buyers and sellers usually come fortransactions, markets may be classified into the following four classes:(a) Local or Village Markets: A market in which the buying and selling activitiesare confined among the buyers and sellers drawn from the same village or nearbyvillages. The village markets exist mostly for perishable commodities in small lots, e.g.,local milk market or vegetable market.(b) Regional Markets: A market in which buyers and sellers for a commodity aredrawn from a larger area than the local markets. Regional markets in India usually existfor food grains.(c) National Markets: A market in which buyers and sellers spread at thenational level. Earlier national markets existed for only durable goods like jute and tea.But with the expansion of roads, transport and communication facilities, the markets formost of the products have taken the form of national markets.(d) World or International Market: A market in which the buyers and sellers aredrawn from more than one country or the whole world. These are the biggest marketsfrom the area point of view. These markets exist for the commodities which have aworld-wide demand and/or supply, such as coffee, machinery, gold, silver, etc. In recent10www.AgriMoon.Com

Agricultural Marketing Trade and Prices8years many countries are moving towards a regime of liberal international trade inagricultural products like raw cotton, sugar, rice and wheat. It is expected that theinternational trade in such commodities will become free from many restrictions that existnow.3. On the Basis of Time SpanOn this basis, markets are of the following types:(a) Short period Markets: The markets which are held only for a day or fewhours are called short-period markets. The products dealt within these markets are of ahighly perishable nature, such as fish, fresh vegetables, and liquid milk. In thesemarkets, the prices of commodities are governed mainly by the extent of demand for,rather than by the supply of, the commodity.(b) Periodic Markets: The periodic markets are congregation of buyers andsellers at specified places either in villages, semi-urban areas or some parts of urbanareas on specific days and time. Major commodities traded in these markets is the farmproduce grown in the hinterlands. The periodic markets are held weekly, biweekly,fortnightly or monthly according to the local traditions. These are similar to 'spontaneousmarkets' in several developed countries.(c) Long-period Markets: These markets are held for a longer period than theshort-period markets. The commodities traded in these markets are less perishable andcan be stored for some time; like foodgrains and oilseeds. The prices are governed bothby the supply and demand forces.(d) Secular Markets: These are markets of a permanent nature. Thecommodities traded in these markets are durable in nature and can be stored for manyyears. Examples are markets for machinery and manufactured goods.4. On the Basis of Volumes of TransactionsThere are two types of markets on the basis of volume of transactions at a time.(a) Wholesale Markets: A wholesale market is one in which commodities arebought and sold in large lots or in bulk. These markets are generally located in eithertowns or cities. The economic activities in and around these markets are so intense thatover time the population tends to get concentrated around these markets. Thesemarkets occupy an extremely important link in the marketing chain of all the commoditiesincluding farm products. Apart from balancing the supply and demand and discovery ofthe prices of a commodity, these markets and functionaries in them serve as a linkbetween the production system and consumption system. The wholesale markets for11www.AgriMoon.Com

Agricultural Marketing Trade and Prices9farm products in India can be classified as primary, secondary and terminal wholesalemarkets. The primary wholesale markets are in the nature of assembling centres locatedin and around producing regions. The transactions in primary wholesale markets takeplace mainly between farmers and traders. Secondary wholesale markets are generallylocated between primary wholesale and terminal markets. The transactions in thesemarkets take place between primary wholesalers and traders of terminal market. Theterminal markets are generally located at the large urban metropolitan cities or exportcentres catering to the large consuming population around them or in the overseasmarkets.(b) Retail Markets: A retail market is one in which commodities are bought byand sold to the consumers as per their requirements. Transactions in these markets takeplace between retailers and consumers. The retailers purchase the goods fromwholesale market and sell in small lots to the consumers in retail markets. Thesemarkets are very near to the consumers.The distinction between the wholesale and retain market can be made mainly onthe basis of buyer. A retail market means that the buyers are generally ultimateconsumers, whereas in the wholesale market the buyers can be wholesalers or retailers.But sometimes-bulk consumers also purchase from the wholesale markets. The quantitytransacted in retail markets is generally smaller than that in the wholesale markets.5. On the Basis of Nature of TransactionsThe markets which are based on the types of transactions in which people areengaged are of two types:(a) Spot or Cash Markets: A market in which goods are exchanged for moneyimmediately after the sale is called the spot or cash market.(b) Forward Markets: A market in which the purchase and sale of a commoditytakes place at time t but the exchange of the commodity takes place on some specifieddate in future i.e., time t 1. Sometimes even on the specified date in the future (t 1),there may not be any exchange of the commodity. Instead, the differences in thepurchase and sale prices are paid or taken.6. On the Basis of Number of Commodities in which Transaction Takes PlaceA market may be general or specialized on the basis of the number ofcommodities in which transactions are completed:12www.AgriMoon.Com

Agricultural Marketing Trade and Prices10(a) General Markets: A market in which all types of commodities, such asfoodgrains, oilseeds, fibre crops, gur, etc., are bought and sole is known as generalmarket. These markets deal in a large number of commodities.(b) Specialized Markets: A market in which transactions take place only in oneor two commodities is known as a specialized market. For every group of commodities,separate markets exist. The examples of specialized markets are foodgrain markets,vegetable markets, wool market and cotton market.7. On the Basis of Degree of CompetitionEach market can be placed on a continuous scale, starting from a perfectlycompetitive point to a pure monopoly or monopsony situation. Extreme forms are almostnon-existent. Nevertheless, it is useful to know their characteristics. In addition to thesetwo extremes, various midpoints of this continuum have been identified. On the basis ofcompetition, markets may be classified into the following categories:(a) Perfect Markets: A perfect market is one in which the following conditionshold good:(i) There is a large number of buyers and sellers;(ii) All the buyers and sellers in the market have perfect knowledge of demand,supply and prices;(iii) Prices at any one time are uniform over a geographical area, plus or minusthe cost of getting supplies from surplus to deficit areas;(iv) The prices of different forms of a product are uniform, plus or minus the costof converting the product from one form to another.(b) Imperfect Markets: The markets in which the conditions of perfectcompetition are lacking are characterized as imperfect markets. The following situations,each based on the degree of imperfection, may be identified:(i) Monopoly Market: Monopoly is a market situation in which there is only oneseller of a commodity. He exercises sole control over the quantity or price of thecommodity. In this market, the price of a commodity is generally higher than in othermarkets. Indian farmers operate in monopoly market when purchasing electricity forirrigation. When there is only one buyer of a product, the market is termed as amonopsony market.(ii) Duopoly Market: A duopoly market is one which has only two sellers of acommodity. They may mutually agree to charge a common price which is higher than the13www.AgriMoon.Com

Agricultural Marketing Trade and Prices11hypothetical price in a common market. The market situation in which there are only twobuyers of a commodity is known as the duopsony market.(iii) Oligopoly Market: A market in which there are more than two but still a fewsellers of a commodity is termed as an oligopoly market. A market having a few (morethan two) buyers is known as oligopsony market.(iv) Monopolistic Competition: When a large number of sellers deal inheterogeneous and differentiated form of a commodity, the situation is calledmonopolistic competition. The difference is made conspicuous by different trade markson the product. Different prices prevail for the same basic product. Examples ofmonopolistic competition faced by farmers may be drawn from the input markets. Forexample, they have to chose between various makes of insecticides, pumpsets,fertilizers and equipments.8. On the Basis of Nature of CommoditiesOn the basis of the type of goods dealt in, market may be classified into thefollowing categories:(a) Commodity Markets: A market which deals in goods and raw materials,such as wheat, barley, cotton, fertilizer, seed, etc., are termed as commodity markets.(b) Capital Markets: The market in which bonds, shares and securities arebought and sold are called capital markets; for example, money markets and sharemarkets.9. On the Basis of Stage of MarketingOn the basis of the stage of marketing, markets may be classified into twocategories:(a) Producing Markets: Those markets which mainly assemble the commodityfor further distribution to other markets are termed as producing markets. Such marketsare located in producing areas.(b) Consuming Markets: Markets which collect the produce for final disposal tothe consuming population are called consumer markets. Such markets are generallylocated in areas where production is inadequate, or in thickly populated urban centres.10. On the Basis of Extent of Public InterventionBased on the extent of public intervention, markets may be placed in any one ofthe following two classes:14www.AgriMoon.Com

Agricultural Marketing Trade and Prices12(a) Regulated Markets: These are those markets in which business is done inaccordance with the rules and regulations framed by the statutory market organizationrepresenting different sections involved in markets. The marketing costs in such marketsare standardized and, marketing practices are regulated.(b) Unregulated Markets: These are the markets in which business isconducted without any set rules and regulations. Traders frame the rules for the conductof the business and run the market. These markets suffer from many ills, ranging fromunstandardised charges for marketing functions to imperfections in the determination ofprices.11. On the Basis of Type of Population ServedOn the basis of population served by a market, it can be classified as eitherurban or rural market.(a) Urban Market: A market which serves mainly the population residing in anurban area is called an urban market. The nature and quantum of demand foragricultural products arising from the urban population is characterized as urban marketfor farm products.(b) Rural Market: The word rural market usually refers to the demand originatingfrom the rural population. There is considerable difference in the nature of embeddedservices required with a farm product between urban and rural demands.Rural markets generally have poor marketing facilities as compared to urbanmarkets. According to the survey of the Directorate of Marketing and Inspection (DMI) ofGovernment of India, only 46 per cent of rural primary markets, of the country have thefacility of market yards; 6.4 per cent have office buildings, 3.2 per cent have cattle shed,3 per cent have canteen, 4.9 per cent have storage facilities, 5.1 per cent have auctionplatforms, 12.9 per cent have drinking water facility and 5.2 per cent markets haveelectricity facility. Marketing support services such as godowns, cleaning, priceinformation and extension services were found completely non-existent in most of theserural markets.12. On the Basis of Market Functionaries and Accrual of Marketing MarginsMarkets can also be classified on the basis of as to who are the marketfunctionaries and to whom the marketing margins accrue. Over the years, there hasbeen a considerable increase in the producers or consumers co-operatives or otherorganizations handling marketing of various products. Though private trade still handlesbulk of the trade in farm products, the co-operative marketing has increased its share in15www.AgriMoon.Com

Agricultural Marketing Trade and Prices13the trade of some agricultural commodities like milk, fertilizers, sugarcane and sugar. Inthe case of marketing activities undertaken by producers or consumers co-operatives,the marketing margins are either negligible or shared amongst their members. In somecases, farmers themselves work as sellers of their produce to the consumers. On thebasis, the market can be (a) farmers markets, (b) cooperative markets or (c) generalmarkets.It must be noted that each market or market place can be classified on the basisof the 12 criteria mentioned above. A 12-dimensional classification of markets is shownin Chart 1.1.16www.AgriMoon.Com

Agricultural Marketing Trade and PricesChart: 1.11412

Index LN Name Page No 1 Introduction 4 - 23 2 Market structure conduct and performance 24 - 42 3 Marketing channels, marketing cost, marketing efficiency and market integration 43 - 75 4 External trade in agricultural products 76 - 92 5 Cooperative agricultural marketing institutions 93 - 142 6 STATE TRADING and QUALITY CONTROL 143 - 160 7 Warehousing

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